Target, Kmart slump offsets Bunnings surge

Wesfarmers has accelerated a review into its underperforming Target business as coronavirus lockdown measures hammer sales and spell a likely earnings decline.

In a trading update on Tuesday, the conglomerate said a strong performance by its Bunnings and Officeworks stores during virus-enforced lockdowns had been offset by slowing momentum at department retail offerings Kmart and Target. 

Third-quarter sales growth at Kmart and Target was broadly in line with the the first half of the financial year, supported by strong growth in online sales, but has deteriorated in recent weeks.

Kmart remains profitable but earnings at Target have declined significantly as customer footfall drops in shopping centres and discretionary categories weaken, particularly apparel.

Wesfarmers said the trend was expected to persist while social distancing and isolation measures remained in place and while many tenants and activities within major shopping centres were not operating.

The group said it was accelerating plans to improve the unsatisfactory financial performance of Target and would deliver its review by June 30. 

In February, Kmart swung to a 5.5 per cent first-half comparable sales growth from a 0.6 per cent decline a year ago, with revenue at the discount department store up $241 million or 7.6 per cent to $4.99 billion.

Target’s comparable sales went the other way, though, falling 2.3 per cent compared with 0.5 per cent growth a year ago as it recorded a worse-than-expected $67 million sales slump.

Wesfarmers shares were up 0.9 per cent to $37.96 after 20 minutes of trade on Tuesday and have fallen just 8.14 per cent in 2020 against a 20 per cent fall for the wider ASX/200. 

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